It's the Federal Reserve Chairman's Turn at Jackson Hole
After many weeks of rumours, the day has finally arrived for Jerome Powell's long-awaited speech at the Jackson Hole symposium in which the market will focus its attention in search of some clue or signal of the beginning of the possible tapering by the Federal Reserve after the rumors about the end of the stimulus program have been repeated since last April after the strong rebound in inflation in the United States due to the economic recovery it is experiencing after the crisis caused by Covid-19.
If yesterday we could observe a negative close on Wall Street with decreases of 0.5% in the SP500 and Dow Jones and 0.6% in the Nasdaq, during this week and due to the uncertainty generated around this meeting, we have seen how the yield of the US bond has suffered a strong rebound until yesterday Thursday of 7.47% reaching 1.354% interest, which has meant a decrease in the price of these bonds. For its part, we have been able to observe that the dollar index throughout the week has suffered a decline close to half a percentage point.
Although after the publication of the latest minutes of the Fed last July where it seemed quite clear that the Federal Reserve could take measures in a more or less rapid way, the truth is that the latest known macroeconomic data are showing a slight slowdown in the economy due to the expansion of the Delta variant of the coronavirus.
Just yesterday, we learned the preliminary data of the US GDP corresponding to the second quarter of the year and the new requests for unemployment benefit, both being worse than expected by the market consensus. Specifically, GDP was set at 6.6% compared to the 6.7% expected while unemployment claims exceeded expectations in more than 3,000 people by establishing in the 353,000 requests.
Therefore, given that the possible beginning of the withdrawal of stimuli could provoke a seismic movement in the markets, after the latest data Jerome Powell could be forced to wait even longer to begin with the progressive reduction of the asset purchase program and a possible increase in interest rates since a false or premature movement could do more damage than expected to the economy and to the financial markets.
If we look at the weekly chart of the SP500, in addition to the spectacular bullish cycle that began back in 2009 with the measures taken after the financial crisis when this index was trading at just 670 points, we can see that since the lows marked in March 2020 the index has risen more than 2000 points, which is a bullish rally of 103% from these lows.
This shows a clear reality, which is that the market depends and has depended a lot on the policies of central banks during the last years, since these based on asset purchases (thus increasing their balance sheets) and with low interest rate policies, have managed to keep the financial markets afloat despite all the economic and geopolitical problems we have experienced.
If we look at the daily chart, we can see that the SP500 over the past few months is in a strong bullish channel trading far from its 200-session moving average. A possible change in the current monetary policy could cause a correction in the financial markets so we must be attentive to the evolution of the Symposium and the next meetings of the Federal Reserve.
The SP500 has several important support levels, the first being to highlight the lower band of the bullish channel. The downward breakout of this level could open the doors to a further correction in search first of all of the support/resistance level represented by the orange stripe and secondly to the level of lows of last May represented by the upper red band that coincides with its average of 200 sessions.
Evolution in the last 5 years:
- 2020: 15.05%
- 2019: 29.09%
- 2018: -5.96%
- 2017: 19.08%
- 2016: 8.80%
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